Outsourced assets are expected to exceed $500 billion in the next three years, creating a broad pool of cash for both traditional and alternative asset managers to tap, according to a research paper scheduled to be released today.
But it will also mean a world of change for managers of institutional assets, according to the paper from Casey, Quirk & Associates LLC, Darien, Conn.
“Money managers will need to recognize that these new intermediaries (the outsourcing platforms) will become increasingly important clients to them going forward,” said Kevin P. Quirk, partner at the firm. “Recognizing that critical decision-making is happening at the outsourcing provider level will be a new dynamic for many managers.”
In the paper, “The New Gatekeepers: Winning Business Models for Investments Outsourcing,” CQA researchers estimate the investments outsourcing market will grow to $510 billion by 2012 from $195 billion at year-end 2008, representing 13% of all assets and 25% of all investors in the U.S. institutional market. (The report defines the institutional market as U.S. corporate defined benefit plans, Taft-Hartley defined benefit plans, endowments, foundations and other non-profit institutional investors.)
Outsourcing of either entire portfolios or only portions of a fund's assets has long been the domain of managers of managers. But the CQA report shows this is changing as new competitors, such as investment consultants and dedicated outsourced investment managers, enter the marketplace. (For this paper, CQA defined outsourcing as delegation by an investor of 100% of assets and some level of investment discretion.)
According to CQA data, traditional managers of managers have seen their market share of U.S. institutional assets under management decrease to 58% as of Dec. 31, 2007, from 67% as of Dec. 31, 2004. Investment consultants' market share, meanwhile, rose to 17% from 4% during the period. Assets under management for dedicated outsourced investment platforms, such as Strategic Investment Group, Washington; or Investure LLC, Charlottesville, Va.; also rose in the three years, to 14% from 9%.